STJ, intermediate products and ICMS credits

Valor Econômico published an article written by lawyers Eduardo Maneira and Marcos Correia Piqueira Maia, partners at Maneira Advogados, which deals with the issue surrounding the right to ICMS credits for so-called intermediate products.

STJ, intermediate products and ICMS credits

The final word is with the 1st Section of the STJ, which may, within the context of voting on tax reform by Congress, recognize a right that has been claimed by taxpayers for decades

By Eduardo Maneira and Marcos C. P. Maia

07/24/2023

Among the biggest discussions between state tax authorities and taxpayers is the one involving the delimitation of the ICMS credit right, which is guaranteed by the principle of non-cumulative nature (article 155, paragraph 2, I, of the Constitution). In practice, there is a debate about what would be the correct parameters to consider a given product as an “input” capable of generating credits that can be offset – by manufacturers, resellers and transport and communication service providers – with the ICMS debts arising from subsequent operations.

In this regard, the jurisprudence of the Federal Supreme Court (STF) makes it clear that the group of materials that can be classified as “input” is that composed exclusively of raw materials, intermediate products and packaging materials.

This is the rationale inherent to the well-known “physical credit” criterion, originally developed for the IPI and the former ICM, which only allows credit for goods that are physically incorporated into the final product (in the case of raw materials and packaging material) or that come into physical contact with it and are consumed immediately and fully in the production process (in the case of intermediate goods).

Such an understanding has always been questioned by ICMS taxpayers, as it prevents the exercise of the right to credit on the acquisition of various goods that are essential for the achievement of their core activities – and which, it should be noted, makes up the cost of the final product or the transport and communication service provided to the user, which will be regularly subject to tax.

However, based on the parameters that define the criterion of physical credit, States have always imposed limits on the exercise of this right. And the biggest point of discussion, certainly, concerns the concept of “intermediate goods”.

After all, as mentioned, state entities, with the approval of the STF and the Superior Court of Justice (STJ), only recognize the existence of intermediate goods when, during the course of the production process, there is direct physical contact with the final product, as well as its immediate and complete consumption. Otherwise, state the States, the goods must be classified as for mere “use and consumption”, whose right to credit will only be permitted from January 2033 due to the provisions of article 33 of Complementary Law No. 87/96 (which means, in practice, a prohibition on the exercise of said right).

It turns out that this entire rationale, developed decades ago, is clearly out of step with the current framework of non-cumulativeness brought by the same complementary law. This is said because this diploma now prohibits the right to credit only in relation to goods that are “unrelated to the activity of the establishment” or that are linked to exempt or untaxed outputs.

So much so that the STJ, in some judgments, even made an important distinction between ICMS and IPI. This is what happened in REsp 1.331.033/SC, which discussed the possibility of recording IPI credits on electrical energy acquired by a furniture manufacturer. On that occasion, the 2nd Panel clarified that energy, “as it does not suffer or cause direct action through physical contact with the product, does not integrate the concept of raw materials or intermediate products”, but that such reasoning does not apply to ICMS, since the tax legislation “does not require physical contact between the input and the product, but only consumption in the industrialization process”.

In other words, although there are still unfavorable judgments in the STJ, it is noted that the Court's jurisprudence is evolving to give greater effectiveness to non-cumulative action. In fact, in a recent judgment, the 2nd Panel recognized the right to ICMS credit on the acquisition of drilling fluid used by a company in the oil and gas sector (REsp 2,054,083/RJ) on the grounds that such an item is essential for the achievement of its core activity, the fact that wear and tear in the production process occurs gradually is irrelevant.

Even in the face of this notorious jurisprudential evolution, it is necessary to highlight that the STJ's decisions fluctuate a lot, generating enormous legal uncertainty. However, it is believed that this scenario's days are numbered, since the trial of EAREsp 1.775.781/SP by the 1st Section began on June 14, in which it is discussed whether certain goods (tires, valves, pump rotors, etc.) could be classified as “intermediate”, even without the existence of physical contact with the final product and immediate and full consumption in the production process.

Minister Regina Helena Costa, appointed rapporteur, gave a brilliant vote in the sense that Complementary Law No. 87/96 would only have prohibited the right to credit for goods that are “unrelated to the establishment's activity” (articles 20, paragraph 1, and 21, III). In other words, in line with what was decided in REsp 2,054,083/RJ, if a product is acquired to be used directly and essentially in the taxpayer's core activity, the possibility of recording credits is preserved (the other requirements mentioned above being irrelevant).

Subsequently, Minister Herman Benjamin requested a review of the case, so that the case is now awaiting further inclusion on the trial agenda. The final word, therefore, lies with the 1st Section of the STJ, which can, within the context of voting on tax reform by the National Congress, recognize a right that has been claimed by taxpayers for decades.

Eduardo Maneira and Marcos Correia Piqueira Maia are, respectively, professor at the Federal University of Rio de Janeiro, PhD in Tax Law from UFMG and partner at Maneira Advogados; and PhD student in Tax Law at the Complutense University of Madrid and partner at Maneira Advogados.

https://valor.globo.com/legislacao/coluna/stj-produtos-intermediarios-e-creditos-de-icms.ghtml